The Big Shift in Strategy - Part 1

In an exponential world, it stands to reason that our traditional, linear approaches to strategy will need to be re-thought from the ground up. One way to characterize the big shift in strategy is that we are moving from strategies shaped by terrain to strategies shaped by trajectory. What do I mean by this?

Strategies of terrain

If you think about traditional approaches to strategy, they were profoundly shaped by the current landscape. The job of the strategist was to look across the surrounding terrain from the vantage point of the company and determine what were the most favorable positions to occupy – where could the company build positions of sustainable competitive advantage? Sure, there was a dynamic component to the strategy – your actions could alter the landscape and any good strategist would need to anticipate the likely actions of existing competitors and potential new entrants. But the starting point was always your current position and the current landscape surrounding your existing position.

But as the world changed, so did strategy. As the terrain become more unstable, evolving at a faster and faster rate with increasing uncertainty as to potential outcomes, the horizon of the strategist began to shrink in two ways. First, strategists shifted from a view of the external terrain to a view of the internal terrain. Rather than looking at the structure of markets or industries, the strategist began to focus on “core competencies.” Strategists started to look inward, at the terrain within the company, in a systematic effort to identify the existing capabilities that were world-class and focus on approaches to strengthen those core competencies even more.

In parallel, there was a move to strategy as “hustle”. Since the external terrain was evolving more and more rapidly with increasing uncertainty about outcomes, this school of strategy argued that those who could sense and respond most quickly to the near-term events would be the ultimate winners. The only terrain that mattered was the terrain immediately surrounding the company and the relevant time frame was today, not tomorrow.

But here’s the problem. In a world that’s more rapidly changing, there’s a significant risk involved in focusing on a narrowing terrain today. The core competency approach can be easily blind-sided if it turns out that the capabilities that are creating great economic value today suddenly become obsolete. We may be focusing on making better and better buggy whips while missing the fact that the market is shifting from horse drawn carriages to cars.

The hustle approach has a different problem. First, it runs the risk of spreading the resources of the company way too thinly across too many fronts as the company races to respond to all incoming actions without any ability to prioritize which of these events are really enduring versus one-off distractions. Second, day to day hustling as a hard time dealing with fundamental disruptions that require more than an incremental, short-term response. If we are moving from horse drawn carriages to cars, we may need to respond with more than hustle.

I would suggest that our efforts to evolve terrain-based strategies to cope with an exponential world are yielding rapidly diminishing returns. If you want evidence of this, check out our analysis of the collapse of return on assets for all public companies in the US since 1965.

Strategies of trajectory

What we need to do at this point is to step back and reassess at a more basic level our approach to strategy. Rather than focusing on terrain, however narrowly or broadly defined, perhaps we should shift our attention to trajectory.

Here’s the paradox. At precisely the time that change is accelerating and uncertainty increasing, we need more than ever to have a clear view of the trajectory of change and how it will reshape the business landscape in the decades ahead. We also need to assess carefully what degrees of freedom we might have in shaping these outcomes through our actions, rather than simply taking them as a given. We then need to develop strategies that will put our companies on a trajectory to compete more effectively on a rapidly changing terrain.

Rather than looking from the present out to the future, we need to look from the future back to the present to determine which actions will have the greatest impact and create the most economic value over time. As Yogi Berra famously observed, "You've got to be very careful if you don't know where you're going, because you might not get there." The winners in a more intensely competitive world will be those who know where they are going and accelerate their movement in the most promising direction.

Position in the future, not the present

As I indicated in a couple of earlier blog posts here and here, strategies of position still matter, but I didn’t sufficiently emphasize that these new strategies need to focus on the most attractive and advantaged positions in future landscapes, not the current landscape. If we just focus on position in the current landscape, we risk being blindsided as the landscape rapidly evolves into something quite different. What looks like solid high ground today can quickly become quicksand, dragging us under.

Perhaps even more importantly, the most advantaged locations in the future landscape often are not even part of today’s landscape and they will tend to emerge and be shaped by significant economies of scale and network effects that will play out very quickly once critical mass has been achieved. Playing a wait and see game in the hope that things will become clearer over time can be very dangerous. By the time you see what’s happening, it may be too late to do anything about it. Fast followers in an exponential world will increasingly find that they are on a path to the grave.

Anticipating the future

But I can already hear the pushback. “John, the future’s just too uncertain. We can’t possibly know what the landscape is going to look like a decade from now.” There’s no question that there’s a lot of uncertainty, but part of the problem when we shrink our time horizons is that we get more and more buffeted about by surface events and lose our ability to distinguish what is lasting versus momentary change. As a result, the more we shrink our time horizons, the more uncertain the world looks. It’s easy to get overwhelmed and fall into a vicious cycle where the more we shrink our time horizons, the more uncertain the world looks and then we shrink our time horizons even more.

It helps to know that we don’t need a detailed blueprint of that future landscape – all we need is enough detail to give us a sense of direction and to help us make some difficult choices in the near-term. In fact, by moving away from a perceived need for a detailed blueprint and focusing instead on the broad outlines of the future, we now have greater incentive to identify and understand the fundamental forces that are shaping the business landscape, rather than getting lost in the details. This greatly simplifies our task since the long-term forces shaping the business landscape are more predictable in terms of their broad direction than the swirling surface events that emerge unpredictably and just as quickly disappear.

So, what are the winning strategies of trajectory to replace the strategies of terrain that are getting us into more and more trouble? I’m afraid I’ll have to leave that to my next post because this one is already reaching a length that will prove challenging for those of you who are struggling to keep up with the surface events that are competing for our attention on a daily basis. I assure you, there is more to come so be sure to carve out the time to explore this with me.

Comments

Thank you for articulating this so clearly.

Before I read the next post, I'd like to build on what you have said above. The evolution from "big terrain strategy" to "competency terrain strategy" has been a long and iterative process. As a result, I believe the most significant hubris effecting economic growth today is not realizing how risk averse we have become.

You have kept your focus on the positive instead of criticizing and that's the way forward. So I will try to make the following point in the same spirit.

There are two kind of unknowns we face. There are the unknown possibilities. And there are the unknown risks.

I believe that leaders are chilled by instinctive reaction that the risks outweigh the possibilities. There is good reason.

There are two kinds of risks. The risks we can't predict and the risks that have been created by flawed assumptions made in the past but have been accepted as "givens". Even the business leaders who know better, know that they can't control the media, wall street, competitors, etc. who perpetuate these myths.

But the timing is right for courage. The customer is business leader's ally. While business has been avoiding risk, customers are taking more and more risks sharing their personal data to get new, inventive stuff.

Sure some business leaders look at that and say they do it because it is free or cheap.

Others like APPLE see the desire for "better stuff" and make better stuff worth paying for with dollars instead of personal data. [By the way, even if it means cannibalizing the better stuff people paid for a few years before (when was the last time you used an I-POD).]

One part of the story behind it is that I suggested two years ago that the Dominican Republic's National Strategic Development law be repealed to get the private sector out of its comfort zone and into the where the magic is, which is the future landscape.

Somewhat related to the Big Shift I used Black Zwans negative and positive, which apply depending on which landscape we are.

Implicit here is the call for a new kind of actor with new capabilities (knowledge, skills, experiences, attitudes, and behaviors).

Whence these actors?

Part of the answer is the education systems of society. I wonder whether they are up to the task. In America, K-12 is increasingly suspect and I wonder whether higher education is not on the same path.

Daniel Pink once remarked, as I understand it, that the problem with higher education is it prepares students for the professor's past, not the student's future.

It seems to me you are calling for a new actor possessing capabilities (knowledge, skills, experiences, attitudes, and behaviors) that are not all that common.

Whence these actors? The obvious answer is the education system. However, K-12 is suspect in this regard and I'm developing serious doubts as to whether higher education is up to the task. I heard the Daniel Pink described the problem with higher education as one where professors taught the students about their past, not about the students' futures.

Intriguing perspective on change! When thinking of *strategies of trajectory* I'm reminded of David Snowden's Cynefin model where the action of the Complex domain (complex, emergent) is characterized as - 'probe.sense.response'.

It seems we may need to learn to inhabit that complex emergent domain, experimenting/prototyping (probing) in order to translate what we see as the emerging patterns of change into the 'analyze.sense.respond' Knowable territory where insights can be actualized.

Look forward to next segment for strategies on how to accomplish this!

I really appreciate what you are getting to with this post John. I suspect having a sense of how we, as a company, perceive and address time, is a factor of great leading companies. And I have my fingers crossed that the next post(s) talk about envisioning creative possibilities to work toward and not just more risk management that will spiral us down into mitigation of our worst fears.

John - I would argue that strategy should always have been trajectory but in the 20th C some had the 'luxury' of not thinking that way...and most of those either don't exist, were bought out, or are struggling today. The "core competency" movement has driven me nuts and I try to get my clients to consider if their core competencies are really core liabilities going forward - just as if their 'core assets' are now core detriments (e.g., if it's a sunk cost, it's sunk! move on!). I hope more people read this and understand the imperative of making one's future, of designing your future for your customers, employees, industry and communities.... he who experiments-learns-applies-iterates fastest has the greatest impact!

Hustling as a strategy doesn't have to spread the organisation too thinly John. If knowledge workers are allowed to create and run clearly defined experiments (probes - with pre-defined indicators of success or failure) leaders can focus on managing portfolios of probes, which will reflect both (internal) core capabilities and (external) opportunities recognised.

Leaders retain the right to reserve release of incremental resources to turn probes into prototypes - depending on their (now evidence-based) judgement of the veracity and desirability of the evidence generated. And taken en masse, the portfolio itself will be an evolving, evidence-based map of the current truth of the organisation's position.

Isn't such present certainty in an uncertain world the most viable strategy an organisation can adopt?